How Does a ‘Perpetual Swap’ Differ from a Traditional Futures Contract?
A traditional futures contract has a fixed expiration date, and the price converges with the spot price at that date. A perpetual swap, however, has no expiration date, allowing a trader to hold the position indefinitely.
To keep the perpetual swap price anchored to the spot price, a 'funding rate' mechanism is used. This rate is paid between the long and short positions, incentivizing traders to balance the contract price with the underlying asset's spot price.
Glossar
Traditional Futures
Derivation ⎊ Traditional Futures, within cryptocurrency and financial derivatives, represent standardized contracts obligating the holder to buy or sell an underlying asset at a predetermined price on a specified future date, differing from perpetual contracts through explicit expiry.
Perpetual Swap Price
Index ⎊ The perpetual swap price represents the market price of a perpetual futures contract, which is designed to closely mirror the price of the underlying cryptocurrency index.
Perpetual Swap
Mechanism ⎊ Perpetual swaps, within cryptocurrency markets, represent agreements to exchange cash flows based on the difference between a cryptocurrency’s current price and a user-defined price, perpetually, without an expiration date.